Why the UK is facing a more severe inflation crisis than other powers

Why the UK is facing a more severe inflation crisis than other powers

While experts expect inflation to have peaked in the United States, citizens of United Kingdom they will continue to suffer the fierce bite of runaway prices.

The country registered a rise of 9.1% in May, the highest level in four decades, and according to forecasts by the Bank of England, the rate will hit 11% this fall.

The United States registered the same figure in the month of June, but none of the first five world powers, according to their GDP, had a higher figure.

And, contrary to what is expected in the rest, the United Kingdom will register a “high inflation for much longer”explained Andrew Bailey, Governor of the Bank of England speaking of the forecasts for the rest of the year.

That, along with a Falling growth and little room for maneuver for the Bank of England to redirect the situation, they have placed the fifth power in the world in a tense position.

It is not uncommon, therefore, that the situation of the UK economy has been one of the factors that forced Boris Johnson to as leader of the Conservative Party last week.

Inflation Among Major Economies

A decision that will lead his party to replace him in office next September, putting an end to the shortest term of a prime minister since 1900after spending less than three years leading the country.

Weeks before resigning, MPs were asking Johnson to cut taxes to revive the economy and give a break to the pockets of the middle class.

But huge fiscal deficit, accelerated by huge government spending on stimulus to tackle the ravages of the coronavirus pandemic, they have left the government with little choice.

In fact, the issue of inflation has become one of the main concerns of the British according to a recent YouGov survey.

“Without being able to recover from covid-related losses until early 2022, The United Kingdom was faced with a new crisis of stagflation due to the war in Ukraine”, Silvia Dall’Angelo, senior economist at the firm Federated Hermes, explains to BBC.

Restaurant terraces in the streets of London.
Restaurant terraces in the streets of London.

“The cost-of-living crisis here is very similar to what its European neighbors are facing,” he adds, but they are internal issues those that force the UK to face some specific challenges and bring it closer to a recession.

Staff shortage

To begin with, and contrary to what one might think, the labor market strength is having an unexpected effect.

“As the economy has recovered [tras la pandemia]the demand for labor has been strong and has collided with the shortage of supply”.

An almost exact formula for inflate.

As an example, what happened in the restaurant sector.

Many pubs and restaurants, unable to find waiters or cooks and facing the prospect of going out of business, have raising fees to attract staff.

“The UK’s 3.8% unemployment rate is near the lows of 40 years ago and it’s a component that helps drive wages across the economy,” says Ben Laidler, global markets strategist at trading platform eToro.

The UK is experiencing supply chain problems.
The UK is experiencing supply chain problems.

Brexit endure

This lack of staff is related to Brexit, as many workers in the food supply chain were from the continent and already They do not have permission to work in the UK.

“Since the agreement to leave the European Union was negotiated, signs of tensions in trade and in private labor markets have increased due to the fact that there is no capacity to hire EU citizens in the same way that it could be done in the past,” explains Chris Iggo, president of the AXA IM Investment Institute.

“In the UK, the severity of the cost of living crisis may be felt more, as the economy is also digesting the hard Brexit, that caused an increase in taxes on households”, affirms in the same line the economist of the firm Julius Baer, ​​David Alexander Meier.

Experts believe that the UK is heavily exposed to the two main drivers of inflation globally today: a strong job market and rising energy prices.

“Most other countries have one of these factors, but not both,” adds Laidler.

The shortage of HGV drivers has hit the UK's fuel supply chain.
The shortage of HGV drivers has hit the UK’s fuel supply chain.

50% more expensive energy

And it is that another reason for a higher peak in general inflation in the United Kingdom compared to similar economies is “the rapid transfer of energy prices to consumers,” adds Meier.

“It is expected that energy bills to go up again this fall”, dice.

The energy price cap, which determines household bills, will increase about 50% in the next revision October, once again damaging the purchasing power of citizens.

UK is a large importer of oil, gas and coalaccounting for about a third of its total needs, making it highly exposed to rising global energy prices.

Europe urgently seeks alternative sources of energy with which to supply gas from Moscow.
Europe urgently seeks alternative sources of energy with which to supply gas from Moscow.

The economist Dall’Angelo predicts a new level of headache for the United Kingdom if the current ones are maintained gas supply interruptions from Russia.

“This could cause a power rationing in the winter months, which would have implications for the UK.

To this is added a country’s limited capacity to store gas against the strategy that many countries are following to prepare for supply cuts and for winter in the northern hemisphere.

imported food

Other elements of UK vulnerability include a higher proportion of imported food.

“The Quite weak pound since Brexit referendum also puts inflationary pressure upwards through the increase in import prices”, explains Meier.

Outgoing British Prime Minister Boris Johnson.
Outgoing British Prime Minister Boris Johnson.

And it is that, added to the shortage of personnel, the product shortage it is putting even more pressure on the British economy and has seen empty shelves in several supermarkets and long queues to buy petrol.

For all this, the expert believes, the peak of headline inflation in the UK will take longer to be reached and, consequently, the change and decrease in inflation rates will also occur later.

Melissa Galbraith
Melissa Galbraith is the World News reporter for Globe Live Media. She covers all the major events happening around the World. From Europe to Americas, from Asia to Antarctica, Melissa covers it all. Never miss another Major World Event by bookmarking her author page right here.